An overview of the Indian real estate market

In real estate, demand forecasting always has been a riddle for economists. They suggest that consumption items such as cars, iPhones and mobile data have a falling demand curve. It means as the price will fall, there will be an increase in their consumption.

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In the case of investment products such as equities, as there will be a fall in price, typically, trading volumes will be coming down. So, it will indicate reduced demand. But when it is about real estate, it seems that demand forecasting is a challenging thing. Few buy homes for an investment purpose; few for consumption and the rest consider it an investment-cum-consumption. So, demand forecasting is always a riddle. However, with a thorough analysis, one can become familiar with the Indian real estate market’s expected trend.

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India, a developing economy, witnessed massive growth in real estate in the 1990s and the beginning of the 2000s. However, such growth was primarily driven by all service exports to countries such as the US. Thus, the economy got changed entirely due to globalization. One of the most significant changes was seen in the real estate market in India with its newly found volatility. Read along to know how the Indian real estate market transformed into a predictable, leverage directed market from a safe conservation haven.

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Boom and bust in 1993

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●???????Many things changed at the start of the 1990s.

●???????The first bull market run was witnessed in 1993.

●???????It continued till the market crisis that emerged in 1995.

●???????The stock market soared. Investors’ felt highly confident.

●???????A lot of people booked their profits and overnight became millionaires.

●???????After understanding their profits, investors considered the real estate market to be a perfectly safe place. Here they can make investments.

●???????During this phase, several NRIs first bought their properties in India.

●???????This bull run's biggest beneficiary was Navi Mumbai.

●???????Due to such increasing money, the real estate market got flooded.

●???????It created a booming scene.

●???????The same real estate market that did not move even some percentage points in the last few years started to move more than 10 % yearly.

●???????But soon, a change was seen.

●???????The market crashed down.

●???????The stock market index got decreased to 50 % of its high.

●???????It created a parallel impact on the Indian real estate market.

●???????It was because investors started to sell their holding to compensate for any market loss.

●???????Thus the property market faced considerable pressure downward.

●???????Prices saw a drop by more than 40 % in a few years.

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Slowdown in 1995

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●???????During this phase (1993-1995), several NRIs first bought their properties in India.

●???????This bull run's biggest beneficiary was Navi Mumbai.

●???????However, the collapse of the real estate market caused banks or other financial institutions to take their worrying assets from failing owners and lenders.

●???????It brought suffering to investors as they invested for significant profits in real estate.

●???????Many parted with properties because they could not pay timely, and banks came with enormous recovery power then.

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Boom in 2002

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●???????The later 1990’s slowdown got reversed by the US Central bank’s quantitative easement in 2001.

●???????It happened after the crisis of 9/11.

●???????Various central banks followed the policy of easy money.

●???????Through FDI, the free-flowing money entered the real estate market in India.

●???????It activated a historic boom in real estate that lasted till 2008’s US housing crisis.

●???????Due to globalization, India enjoyed many benefits.??

●???????The country included a working population of English-speaking and technologically advanced people.

●???????Thus a big chunk of IT and ITeS became a part of the Indian real estate market.

●???????The average young unemployed Indian suddenly had a job that offered them decent pay.

●???????US jobs brought US culture into the markets.

●???????The new wealthy Indians started to abandon traditional values and started to buy new homes.

●???????Mortgages were no more an exception. They became normal.

●???????A bubble of unpredicted proportion was created in the Indian real estate market.

●???????Many buyers, who were not even part of the market, suddenly got the power to purchase.

●???????Banks started heavily lending to such people.

●???????So the market was suddenly flooded with the purchasing power that was created newly.

●???????Indian market suddenly began to take risks.

●???????There was a rise in price by over 15 % yearly.

●???????It continued for more than ten years.

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Slowdown in 2008

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●???????For fighting the US housing crisis, a vast liquidity push was propelled by the government.

●???????Many countries followed the biggest economy.

●???????Thus, this global liquidity again entered the Indian real estate market via HFCs, real estate funds, etc.

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Boom in 2009

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●???????Post-2009, there was a significant upward movement in realty prices along with big volumes.

●???????Lower interest rates of home loans and excellent job security will assist in reviving the residential segment’s demand.

●???????So there will be a stabilisation of capital value in early 2010, and during the year’s second half, there will be an increase.

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Slowdown in 2016

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●???????Almost all middle-class Indian workers wish to purchase a home.

●???????Some can only do it at the prevailing inflated prices in the market from 2010.

●???????The property prices in the real estate market witnessed stagnation from 2010 onwards.

●???????The global prescribed standard for a reasonable mortgage indicates that not more than 35% of an individual’s net income should be paid for the monthly mortgage.

●???????But no average worker in any single city in India can buy a home on this type of budget.

●???????The real estate market faced the Triple Trauma of Demonetisation, RERA and GST.

●???????It caused a considerable slowdown in the Indian real estate market.

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Boom in 2022

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●???????From the time of the Covid-19 pandemic, most Western economies started to develop massive liquidity.

●???????It caused treasury bonds’ yields close enough or lower than zero.

●???????Such surplus money will make way into the real estate in India during the following year.

●???????Indian economy will grow in the 8-9% range.

●???????It will drive growth in demand for more extensive homes in the leading Indian market.

●???????With the increase in demand, the prices will rise naturally.

●???????The only expected outcome will be a rise in real estate by this year.

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Conclusion

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The real estate market in India is residing in a bubble. The buyers and developers are experiencing a wait and observe stand-off. Both have a hope that the other will be relenting. The sustainability of the stand-off will be seen over time. Home?sales rose 71% year-on-year, with 237,000 units sold in 2021, thus reaching 90% of pre-Covid 2019 levels.

With more business activities or transactions, the retail growth will be accelerated. This will cause a sudden spike retail spaces demands like malls, stores, etc. Huge institutional investments will be stimulating the commercial real estate sector’s growth in the near future.

Real estate sector in India is expected to reach?US$ 1 trillion in market size by 2030, up from US$ 200 billion in 2021.